JGBs end on steady note; benchmark yields at 3-month high
* Benchmark yields end 2012 well above 9 1/2-year low hit earlier this month * U.S. "fiscal cliff" scenario could mean stronger yen, lower JGB yields-analyst * 20-yr yield edges down after touching 8-month high By Lisa Twaronite TOKYO, Dec 28 (Reuters) - Japanese government bonds were steady on the last trading day of 2012 with benchmark yields at the three-month high hit in the previous session, on expectations that the new year will bring more fiscal and monetary stimulus measures. Markets here will be closed for the long New Year's holiday in Japan, and will reopen on Jan. 4. "A lot of people are off already, having closed out their positions for the year. When markets open a week from today, the big question will be what happened with the U.S. fiscal cliff, and how U.S. debt prices reacted to the developments," said a fixed-income fund manager at a European asset management firm in Tokyo. Republican leaders in the House of Representatives told their members to be back in Washington from the Christmas holiday break on Sunday in case they need to vote on budget measures, leaving the door open to a last-minute solution to the U.S. budget impasse. "If a fiscal cliff does become a reality, we can expect a downturn in the dollar/yen and Japanese stocks. The unwinding of speculative dollar/yen positions could lead to a significant upswing in the Japanese currency," Noriatsu Tanji, a fixed income strategist at Barclays in Tokyo, said in a note to clients. "As 0.8 percent appears to be the line for buying on weakness in 10-year JGBs, we see a somewhat greater risk of a yield decline through early next year," Tanji said. The 10-year JGB yield was flat at 0.800 percent, its highest level since Sept. 21. Earlier Friday, it slipped to 0.795 percent. Benchmark yields dropped as low as 0.685 percent on Dec. 6, their lowest since June 2003. They finished 2011 at 0.980 percent. The benchmark 10-year JGB futures contract ended up 0.15 point at 143.65 on Friday, though still well shy of Dec. 7's intraday high of 145.26, which was the highest level ever for a 10-year JGB futures contract. Futures finished 2011 at 142.41. Yields on 20-year bonds edged down half a basis point to 1.755 percent, after earlier rising as high as 0.1770 percent, their highest since early April. Yields on 30-year bonds also shed half a basis point to 1.975 percent. The market shrugged off downbeat economic data released on Friday morning, even though it bolstered the case that more monetary stimulus steps probably lie ahead from the Bank of Japan. Industrial output fell 1.7 percent in November, more than triple the median market forecast for a 0.5 percent decline. The BOJ delivered further easing steps last week in response to intensifying pressure from new Prime Minister Shinzo Abe, whose government was sworn in two days ago. In addition to monetary stimulus, the government will compile spending requests for its own stimulus package on Jan. 7 and finalise the proposal shortly thereafter, to implement Abe's agenda of "big" spending to help narrow the output gap and ease deflation. Benchmark JGBs have lost 6.9 percent in 2012 in dollar-based terms, according to Reuters data. Part of that is due to the weakness of the Japanese yen, which is on track to lose more than 12 percent against the dollar this year, its weakest performance since 2005.
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